Pioneer Power Solutions (PPSI) 10-Q2021 Q3 Quarterly report

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UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549 

FORM 10-Q

(Mark One) 

For the quarterly period ended September 30, 2021

OR

For the transition period from __________ to ___________

Commission file number: 001-35212

PIONEER POWER SOLUTIONS, INC. 

(Exact name of registrant as specified in its charter)

(212) 867-0700 

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒

The number of shares outstanding of the registrant’s common stock, $0.001 par value, as of November 15, 2021 was 8,726,045.

PIONEER POWER SOLUTIONS, INC. 

Form 10-Q 

For the Quarterly Period Ended September 30, 2021

TABLE OF CONTENTS

 PART I. FINANCIAL INFORMATION

PART II. OTHER INFORMATION

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

PIONEER POWER SOLUTIONS, INC. 

Consolidated Statements of Operations 

(In thousands, except per share data) 

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

PIONEER POWER SOLUTIONS, INC. 

Consolidated Statements of Comprehensive (Loss) Income 

(In thousands) 

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

PIONEER POWER SOLUTIONS, INC. 

Consolidated Balance Sheets 

(In thousands, except share data)

The accompanying notes are an integral part of these consolidated financial statements.

PIONEER POWER SOLUTIONS, INC. 

Consolidated Statements of Cash Flows 

(In thousands) 

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

PIONEER POWER SOLUTIONS, INC. 

Consolidated Statement of Stockholders’ Equity 

(In thousands) 

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

PIONEER POWER SOLUTIONS, INC. 

Notes to Consolidated Financial Statements 

September 30, 2021 (Unaudited)

1. BASIS OF PRESENTATION

Overview

Pioneer Power Solutions, Inc. and its wholly owned subsidiaries (referred to herein as the “Company,” “Pioneer Power,” “we,” “our” and “us”) manufacture, sell and service a broad range of specialty electrical infrastructure and on-site power generation equipment for applications in the utility, industrial, commercial and backup power markets. Our principal products and services include switchgear and engine-generator controls, complemented by a national field-service network to maintain and repair power generation assets. The Company is headquartered in Fort Lee, New Jersey and operates from 3 (3) additional locations in the U.S. for manufacturing, service and maintenance, engineering, sales and administration.

We have 2 reportable segments as defined in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2021: Transmission and Distribution Solutions (“T&D Solutions”) and Critical Power Solutions (“Critical Power”).

Presentation

The accompanying unaudited interim consolidated financial statements of the Company have been prepared pursuant to the rules of the SEC and reflect the accounts of the Company as of September 30, 2021. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), have been condensed or omitted pursuant to those rules and regulations. We believe that the disclosures made are adequate to make the information presented not misleading to the reader. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the financial position, results of operations and cash flows with respect to the interim consolidated financial statements have been included. The results of operations for the interim period are not necessarily indicative of the results for the entire fiscal year. The year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP for a year-end balance sheet.

All dollar amounts (except share and per share data) presented in the notes to our unaudited interim consolidated financial statements are stated in thousands of dollars, unless otherwise noted. Amounts may not foot due to rounding. ASC 740-270 requires the use of an estimated annual effective tax rate to compute the tax provision during an interim period unless certain exceptions are met. We have used a discrete-period computation method to calculate taxes for the fiscal three and nine month periods ended September 30, 2021. Due to operating losses, the Company has determined that it is unable to reliably estimate its annual effective tax rate.

These unaudited interim consolidated financial statements include the accounts of Pioneer Power and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

These unaudited interim consolidated financial statements should be read in conjunction with the risk factors under the heading “Part II - Item 1A. Risk Factors” and the risk factors and the audited consolidated financial statements and notes thereto of the Company and its subsidiaries included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Liquidity

The accompanying financial statements have been prepared on a basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements as of the nine months ended September 30, 2021, the Company had $3.4 million of cash on hand and working capital of $5.7 million. The cash on hand was generated primarily from the completion of the sale of the transformer business units during the year ended December 31, 2019, proceeds from the sale of the CleanSpark Common Stock (as defined herein) and warrants to purchase CleanSpark Common Stock, proceeds from insurance and the funding from the Paycheck Protection Program recognized during the year ended December 31, 2020. We have historically met our cash needs through a combination of cash flows from operating activities and bank borrowings. Our cash requirements historically were for operating activities, debt repayment and capital improvements. As all outstanding amounts under our credit facilities were paid in full during the year ended December 31, 2019, and the credit facilities terminated, we expect to meet our cash needs with our working capital and cash flows from our operating activities. We expect our cash requirements to be generally for operating activities and capital improvements. The Company expects that its current cash balance is sufficient to fund operations for the next twelve months.

On June 1, 2021, the board of directors of the Company declared a special cash dividend of $0.12 per common share, payable to shareholders of record as of June 22, 2021, to be paid on July 7, 2021. The Cash dividends were paid in July of 2021 and equaled $0.12 per share on the $0.001 par value common stock resulting in an aggregate distribution of approximately $1.0 million representing a capital repayment paid from additional paid-in capital (“APIC”).

During the first quarter of 2021, the Company executed a cash collateral security agreement with a commercial bank, which agreement required us to pledge cash collateral as security for all unpaid reimbursement obligations owing to the commercial bank for an irrevocable standby letter of credit in the amount of $1.8 million. As a result of executing the cash collateral security agreement, the Company recognized approximately $1.8 million of restricted cash within the consolidated balance sheet at September 30, 2021.

In November 2016, the FASB issued amended guidance to ASU No. 2016-18, Statement of Cash Flows - Restricted Cash (Topic 230), which requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and restricted cash and that restricted cash be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.

The following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the unaudited interim consolidated statement of cash flows:

COVID-19

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic (the “COVID-19 pandemic”), based on the rapid increase in exposure globally.

The full impact of the COVID-19 pandemic continues to evolve as the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. During the three months ended September 30, 2021, the Company experienced an impact to productivity as a result of following social distancing guidelines and practicing personal protective measures. Notwithstanding, the Company has been able to operate substantially at capacity during the COVID-19 pandemic. Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 pandemic and the global responses to contain its spread, the Company is not able to estimate the full effects of the COVID-19 pandemic at this time, however, if the pandemic continues, it may continue to have an adverse effect on the Company’s results of operations, financial condition, or liquidity.

On March 27, 2020, then President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act” (the “CARES Act”) The CARES Act, among other things, appropriates funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment. On April 13, 2020, after having determined that it met the qualifications for this loan program due to the impact that COVID-19 would have on our financial condition, results of operations, and/or liquidity and applying for relief, the Company received a loan under the SBA Paycheck Protection Program (the “PPP Loan”) in the amount of $1.4 million. The Company accounted for the PPP Loan as a debt instrument in accordance with FASB ASC 470, Debt.

Under the terms of the PPP Loan, the Company was eligible for full or partial loan forgiveness. During the first quarter of 2021, the Company received full forgiveness of the PPP Loan and recognized a $1.4 million gain on extinguishment and forgiveness of debt as other income in the unaudited interim consolidated statements of operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are described in Note 2 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. There have been no significant changes in the Company’s accounting policies during the third quarter of 2021. 

Recent Accounting Pronouncements

There have been no recent accounting pronouncements not yet adopted by the Company which would have a material impact on the Company’s financial statements.

Income Taxes. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The ASU is effective for all annual and interim periods beginning December 15, 2020, with early adoption permitted. The Company adopted this guidance on January 1, 2021. The adoption of this ASU did not have a material impact on the consolidated financial statements.

Fair Value Measurement. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement that eliminates, amends, and adds certain disclosure requirements for fair value measurements. The Company adopted this guidance on January 1, 2020. The adoption of this ASU did not have a material impact on the consolidated financial statements.

Measurement of Credit Losses on Financial Instrument. In June 2016, the FASB issued amended guidance to ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments that changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that will replace today’s “incurred loss” model and generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance. This amended guidance for small reporting companies is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first effective reporting period. The Company does not expect that the amended guidance will have a material effect on our consolidated financial statements and related disclosures.

3. FAIR VALUE MEASUREMENTS

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value standard also establishes a three level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows:

On January 22, 2019, Pioneer Critical Power, Inc., a Delaware corporation, and a wholly-owned subsidiary of the Company within the T&D Solutions segment, entered into an Agreement and Plan of Merger with CleanSpark and CleanSpark Acquisition, Inc., a Delaware corporation, which resulted in the Company receiving financial instruments that included the right to receive (i) 175,000 shares of CleanSpark Common Stock (“CleanSpark Common Stock”), (ii) a five-year warrant to purchase 50,000 shares of CleanSpark Common Stock at an exercise price of $16.00 per share, and (iii) a five-year warrant to purchase 50,000 shares of CleanSpark Common Stock at an exercise price of $20.00 per share. The share quantities and exercise prices of warrants reflect the 10:1 reverse stock split which was completed by CleanSpark in December 2019.

During the three months ended September 30, 2020, the Company sold all of the CleanSpark Common Stock and warrants to purchase CleanSpark Common Stock it received in connection with the Merger Agreement and recorded proceeds of $2.4 million. The gain from the sale was partially offset by a mark to market adjustment of $700 and $1.4 million resulting in a net gain of $1.7 million and $968 for the three and nine months ended September 30, 2020, respectively, to other expense (income) in the accompanying statements of operations. Warrants at fair value were previously recorded at inception as long term within other assets.

No changes in valuation techniques or inputs occurred during the nine months ended September 30, 2021 and 2020. No transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the nine months ended September 30, 2021 and 2020.

4. REVENUES

Nature of our products and services

Our principal products and services include switchgear and engine-generator controls, complemented by a national field-service network to maintain and repair power generation assets.

Products

We provide a portfolio of distributed generation products, including switchgear that helps customers effectively and efficiently manage their electrical power distribution systems to desired specifications and allows for flexibility to combine a wide variety of distributed energy resources in a compact, integrated package.

Additionally, we provide our customers with new and used sophisticated power generation equipment intended to ensure smooth, uninterrupted power to operations during times of emergency.

Services

Power generation systems represent considerable investments that require proper maintenance and service in order to operate reliably during a time of emergency. Our power maintenance programs provide preventative maintenance, repair and support service for our customers’ power generation systems. 

Our principal source of revenue is derived from sales of products and fees for services. We measure revenue based upon the consideration specified in the customer arrangement, and revenue is recognized when the performance obligations in the customer arrangement are satisfied. A performance obligation is a promise in a contract to transfer a distinct product or service to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as, the customer receives the benefit of the performance obligation. Customers typically receive the benefit of our products when the risk of loss or control for the product transfers to the customer and for services as they are performed. Under ASC 606, revenue is recognized when a customer obtains control of promised products or services in an amount that reflects the consideration we expect to receive in exchange for those products or services. To achieve this core principal, the Company applies the following five steps:

1)       Identify the contract with a customer

A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the products or services to be transferred and identifies the payment terms related to these products or services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for products or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.

2)       Identify the performance obligations in the contract

Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the products or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised products or services, the Company must apply judgment to determine whether promised products or services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised products or services are accounted for as a combined performance obligation.

3)       Determine the transaction price

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer. The customer payments are generally due in 30 days.

4)       Allocate the transaction price to performance obligations in the contract

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis or cost of the product or service. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

5)       Recognize revenue when or as the Company satisfies a performance obligation

The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised product or service to a customer.

Revenue from the sale of our switchgear equipment is predominantly recognized at a point in time and substantially all of our revenue from the sale of power generation equipment is recognized at a point in time. Revenues are recognized at the point in time that the customer obtains control of the good which is when it has taken title to the products and has assumed the risks and rewards of ownership specified in the purchase order or sales agreement. Certain sales of highly customized large switchgear equipment are recognized over time when such equipment has no alternative use and the Company has an enforceable right to payment for performance completed to date. Revenue for such agreements is recognized under the input method based on cost incurred relative to the estimated cost expected to be consumed to complete the project.

During the three months ended September 30, 2021, the Company recognized $262 of revenue over time and incurred costs of $227 related to a single contract. During the nine months ended September 30, 2021, the Company recognized $3.4 million of revenue over time and incurred costs of $3.1 million related to a single contract. Additionally, the Company recognized $3.4 million and $6.0 million of revenue at a point in time from the sale of our switchgear and power generation equipment during the three and nine months ended September 30, 2021, respectively. Service revenues include maintenance contracts that are recognized over time based on the contract term and repair services which are recognized as services are delivered.

The following table presents our revenues disaggregated by revenue discipline:

See Note 12 - Business Segment and Geographic Information in Notes to Consolidated Financial Statements in Part I of this Form 10-Q.

5. OTHER EXPENSE (INCOME)

Other expense (income) in the unaudited interim consolidated statements of operations reports certain gains and losses associated with activities not directly related to our core operations. For the three months ended September 30, 2021, other expense was $13, as compared to other income of $1.7 million during the three months ended September 30, 2020. For the three months ended September 30, 2020, included in other income was a gain of $1.7 million related to the sale of CleanSpark Common Stock and warrants.

For the nine months ended September 30, 2021, other income was $1.3 million, as compared to other income of $904 during the nine months ended September 30, 2020. For the nine months ended September 30, 2021, included in other income was a gain of $1.4 million for the extinguishment and forgiveness of the PPP Loan. For the nine months ended September 30, 2020, included in other income was a gain of $968 related to the sale and mark to market adjustment on the fair value of the CleanSpark Common Stock and warrants.

6. INVENTORIES

The components of inventories are summarized below:

Inventories are stated at the lower of cost or a net realizable value determined on a weighted average method.

7. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are summarized below:

Depreciation expense was $35 and $50 for the three months ended September 30, 2021 and 2020, respectively.

Depreciation expense was $110 and $164 for the nine months ended September 30, 2021 and 2020, respectively.

8. NOTES RECEIVABLE

In connection with the sale of the transformer business units in August 2019, amongst other consideration, we received two subordinated promissory notes in the aggregate principal amount of $5.0 million and $2.5 million, for a total aggregate principal amount of $7.5 million (the “Seller Notes”), subject to certain adjustments. The Seller Notes accrue interest at a rate of 4.0% per annum, with a final payment of all unpaid principal and interest becoming fully due and payable at December 31, 2022. The Company determined the fair value of the Seller Notes based on market conditions and prevailing interest rates. During the fourth quarter of 2019, the Company and the Buyer, pursuant to the Stock Purchase Agreement, completed the net working capital adjustment, which resulted in the Company paying the Buyer $1.8 million in cash and reducing the principal amount of the $5.0 million Seller Note to $3.2 million. During the second quarter of 2020, the Company recognized an additional reduction to the principal amount of the Seller Note of $194 for a valid claim paid by the Buyer on behalf of the Company. The Company has revalued the Seller Notes for an appropriate imputed interest rate, resulting in a net change to the value of the Seller Notes at September 30, 2021 of $321 for a carrying value of $5.7 million.

9. DEBT

On March 27, 2020, then President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, appropriates funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment. On April 13, 2020 after having determined that it met the qualifications for this loan program due to the impact that COVID-19 would have on our financial condition, results of operations, and/or liquidity and applying for relief, the Company received a loan under the SBA Paycheck Protection Program in the amount of $1.4 million. The Company made this assertion in good faith based upon all available guidance and accounted for the PPP Loan as a debt instrument in accordance with FASB ASC 470, Debt. The Company used the proceeds from the PPP Loan to retain employees, maintain payroll and make lease, rent and utility payments.

Under the terms of the PPP Loan, the Company was eligible for full or partial loan forgiveness. The Company received full forgiveness of the PPP Loan during the first quarter of 2021 and recognized a $1.4 million gain on extinguishment and forgiveness of debt in other income (see Note 5 - Other Expense (Income)).

At December 31, 2020, $633 of principal payments due were recorded as long-term debt and $780 as current debt in accordance with the enactment of the Paycheck Protection Program Flexibility Act of 2020.

Schedule of debt

10. STOCKHOLDERS’ EQUITY

Common Stock

The Company had 8,726,045 shares of common stock, $0.001 par value per share, outstanding as of September 30, 2021 and December 31, 2020.

Stock-Based Compensation

A summary of stock option activity under the 2011 Long-Term Incentive Plan as of September 30, 2021, and changes during the nine months ended September 30, 2021, are presented below:

As of September 30, 2021, there were 0 shares available for future grants under the Company’s 2011 Long-Term Incentive Plan.

Stock-based compensation expense recorded for the three and nine months ended September 30, 2021 was approximately $58 and $129, respectively, as compared to an insignificant amount of stock-based compensation expense during the three and nine months ended September 30, 2020. At September 30, 2021, the Company had total stock-based compensation expense remaining to be recognized in the consolidated statements of operations of approximately $134.

The Company’s 2011 Long-Term Incentive Plan expired during the second quarter of 2021 and there was no plan in effect at September 30, 2021.

11. BASIC AND DILUTED (LOSS) INCOME PER COMMON SHARE

Basic and diluted (loss) income per common share is calculated based on the weighted average number of shares outstanding during the period. The Company’s employee and director stock option awards, as well as incremental shares issuable upon exercise of warrants, are not considered in the calculations if the effect would be anti-dilutive. The following table sets forth the computation of basic and diluted (loss) income per share (in thousands, except per share data):

12. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION

The Company follows ASC 280 - Segment Reporting in determining its reportable segments. The Company considered the way its management team, most notably its chief operating decision maker, makes operating decisions and assesses performance and considered which components of the Company’s enterprise have discrete financial information available. As the Company makes decisions using a manufactured products vs. distributed products and services group focus, its analysis resulted in 2 reportable segments: T&D Solutions and Critical Power. The Critical Power reportable segment is the Company’s Titan Energy Systems, Inc. business unit. The T&D Solutions reportable segment is the Company’s Pioneer Custom Electrical Products Corp. business unit.

The T&D Solutions segment is involved in the design, manufacture and distribution of switchgear used primarily by large industrial and commercial operations to manage their electrical power distribution needs. The Critical Power segment provides new and used power generation equipment and aftermarket field-services primarily to help customers ensure smooth, uninterrupted power to operations during times of emergency.

The following tables present information about segment loss and income:

Revenues are attributable to countries based on the location of the Company's customers:

13. LEASES

The Company leases certain offices, facilities and equipment under operating and financing leases. Our leases have remaining terms ranging from less than 1 year to 5 years some of which contain options to extend up to 5 years. As of September 30, 2021 and 2020, assets recorded under finance leases were $1.4 million and $1.4 million, respectively, and accumulated amortization associated with finance leases were $947 and $711, respectively. As of September 30, 2021 and 2020, assets recorded under operating leases were $3.9 million and $2.1 million, respectively, and accumulated amortization associated with operating leases were $2.1 million and $1.5 million, respectively. During the three months ended September 30, 2021, the Company executed an extension of its operating lease for the manufacturing facility in Santa Fe Springs, California. After adjusting for a weighted average discount rate, the Company recognized a right-of-use asset and lease liability of approximately $1.4 million within the consolidated balance sheets.

The components of the lease expense were as follows:

Other information related to leases was as follows:

Supplemental Cash Flows Information

Weighted Average Remaining Lease Term

Weighted Average Remaining Lease Term and Weighted Average Discount Rate

Weighted Average Discount Rate

Future minimum lease payments under non-cancellable leases as of September 30, 2021 were as follows:

Reported as of September 30, 2021:

14. SUBSEQUENT EVENTS

On October 20, 2020, we entered into an At The Market Sale Agreement with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which we may offer and sell our common shares having an aggregate price of up to $9.0 million from time to time through Wainwright, acting as agent or principal (the “ATM Program”). Shares of common stock are offered pursuant to a sales agreement prospectus included in the Company’s shelf registration on Form S-3 filed with the Securities and Exchange Commission on October 20, 2020, which was declared effective on October 27, 2020. On November 8, 2021, we sold 888,500 shares of common stock under the ATM Program, for total gross proceeds of approximately $9.0 million, at an average price of $10.1288 per share. We incurred approximately $273 of costs related to the common shares issued (including a placement fee of 3.0%, or approximately $270, to Wainwright), resulting in net proceeds of approximately $8.7 million.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying consolidated interim financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission on March 30, 2021.

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the “Company,” “Pioneer Power,” “we,” “our” and “us” refer to Pioneer Power Solutions, Inc. and its subsidiaries.

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements,” which include information relating to future events, future financial performance, financial projections, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:                   

The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. Moreover, new risks regularly emerge, and it is not possible for us to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. You should review carefully the risks and uncertainties described under the heading “Part II - Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q and “Part I - Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 for a discussion of the foregoing and other risks that relate to our business and investing in shares of our common stock.

Business Overview

We manufacture, sell and service a broad range of specialty electrical infrastructure and on-site power generation equipment for applications in the utility, industrial, commercial and backup power markets. Our principal products and services include switchgear and engine-generator controls, complemented by a national field-service network to maintain and repair power generation assets. The Company is headquartered in Fort Lee, New Jersey and operates from three (3) additional locations in the U.S. for manufacturing, service and maintenance, engineering, sales and administration.

Recent Developments

On October 20, 2020, we entered into an At The Market Sale Agreement with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which we may offer and sell our common shares having an aggregate price of up to $9.0 million from time to time through Wainwright, acting as agent or principal (the “ATM Program”). Shares of common stock are offered pursuant to a sales agreement prospectus included in the Company’s shelf registration on Form S-3 filed with the Securities and Exchange Commission on October 20, 2020, which was declared effective on October 27, 2020. On November 8, 2021, we sold 888,500 shares of common stock under the ATM Program, for total gross proceeds of approximately $9.0 million, at an average price of $10.1288 per share. We incurred approximately $273 of costs related to the common shares issued (including a placement fee of 3.0%, or approximately $270, to Wainwright), resulting in net proceeds of approximately $8.7 million.

Description of Business Segments

We have two reportable segments: Transmission & Distribution Solutions (“T&D Solutions”) and Critical Power Solutions (“Critical Power”). 

Distribution Agreement

As previously reported, on January 22, 2019, we entered into a Contract Manufacturing Agreement, dated as of January 22, 2019 (the “Contract Manufacturing Agreement”), by and among us and CleanSpark. Pursuant to the terms of the Contract Manufacturing Agreement, the Company manufactured parallel switchgears, automatic transfer switches and related products (collectively, “Products”) exclusively for purchase by CleanSpark. The Contract Manufacturing Agreement had a term of 18 months and expired on the 18-month anniversary of the execution of the Contract Manufacturing Agreement.

In connection with the expiry of the Contract Manufacturing Agreement, we entered into a Distribution Agreement with CleanSpark (the “Distribution Agreement”), dated as of May 31, 2021, pursuant to which CleanSpark will serve as our exclusive distributor of the Products within any geographic region in which CleanSpark conducts its business (the “Sales Channel”). We will serve as CleanSpark’s sole source of the Products, and of any similar goods or products that would reasonably be deemed as interchangeable with such Products for sale within the Sales Channel. CleanSpark will purchase the Products via written purchase orders to us. The price for the Products sold under the Distribution Agreement will be determined on a job-by-job basis, provided that CleanSpark shall pay us 97% of the contract sales price of the Products to all end-use customers. The Distribution Agreement terminates on December 31, 2023 and may be extended by mutual agreement of us and CleanSpark.

Critical Accounting Policies

There have been no material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.

RESULTS OF OPERATIONS

Overview of the Three and Nine Months Results

Selected financial and operating data for our reportable business segments for the most recent reporting period is summarized below. This information, as well as the selected financial data provided in Note 12 - Business Segment and Geographic Information and in our unaudited Consolidated Financial Statements and related notes included in this Quarterly Report on Form 10-Q, should be referred to when reading our discussion and analysis of results of operations below.

Our summary of operating results during the three and nine months ended September 30, 2021 and 2020 are as follows:

Backlog

Our backlog is based on firm orders from our customers expected to be delivered in the future, most of which is expected to occur during the next twelve months. Backlog may vary significantly from reporting period to reporting period due to the timing of customer commitments. The time between receipt of an order and actual delivery, or completion, of our products and services varies from one or more days, in the case of inventoried standard products, to three to nine months, in the case of certain custom engineered equipment solutions, and up to one year or more under our service contracts.

The following table represents the progression of our backlog, by reporting segment, as of the end of the last five quarters:

Revenue

The following table represents our revenues by reporting segment and major product category for the periods indicated:

For the three months ended September 30, 2021, our consolidated revenue increased by $1.6 million, or 40.3%, to $5.7 million, up from $4.1 million during the three months ended September 30, 2020, primarily due to an increase in sales of our switchgear from our T&D Solutions segment.

For the nine months ended September 30, 2021, our consolidated revenue increased by $675, or 4.8%, to $14.8 million, up from $14.1 million during the nine months ended September 30, 2020, primarily due to an increase in sales of our switchgear from our T&D Solutions segment.

T&D Solutions. During the three months ended September 30, 2021, revenue from our switchgear product lines increased by $1.5 million, or 98.8%, as compared to the three months ended September 30, 2020, as a result of increased sales of our automatic transfer switches and medium voltage switchgear.

During the nine months ended September 30, 2021, revenue from our switchgear product lines increased by $610, or 8.3%, as compared to the nine months ended September 30, 2020, as a result of increased sales of medium voltage switchgear, offset by a reduction in sales of our automatic transfer switches and low voltage switchgear.

Critical Power. For the three months ended September 30, 2021, revenue for our equipment sales increased by $283, or 68.9%, as compared to the same period in the prior year due to the shipment of two large equipment jobs during the three months ended September 30, 2021 and no comparable shipments being recognized during the three months ended September 30, 2020. Revenue for our service sales decreased by $138, or 6.5%, as compared to the three months ended September 30, 2020.

For the nine months ended September 30, 2021, revenue for our equipment sales increased by $488, or 54.8%, as compared to the same period in the prior year due to the shipment of two large equipment jobs during the nine months ended September 30, 2021 and no comparable shipments being recognized during the nine months ended September 30, 2020. Revenue for our service sales decreased by $423, or 7.2%, as compared to the nine months ended September 30, 2020.

Gross Profit (Loss) and Gross Margin

The following table represents our gross profit (loss) by reporting segment for the periods indicated: